Books of accounts are the documents for including all types of financial information, sales, and expenses of a person or a company. It t is the place where all detailed forms of monetary whereabouts and day-to-day business transactions are stated and gathered together.
These are exclusively maintained under various acts such as the Income-tax Act, Companies Act 2013, and GST tax. Books of accounts are the books that provide the histories of business operations and financial transactions of business establishments and taxpayers.
What are Books of Account?
Definition: Books of account are defined as the recorded documents concerning the financial transactions and business operations of a company or individuals.
Taxpayers and business people always keep the records of all financial transactions to avoid penalties after registering your business in The Bureau of Internal Revenue (BIR). The record of each transaction refers to Books of Accounts.
The taxpayers apply for certificates like a certificate of registration (COR) with (Bureau of Internal Revenue) BIR, and they also apply for Books of Accounts at the same time.
So, BIR and Books of Accounts are interrelated, and the Books of Accounts should be registered annually. As per T.R.A.I.N. Law Sec. 232-
All corporations, companies, partnerships or persons are required by law to pay internal income taxes must use and maintain a relevant and appropriate set of bookkeeping records duly authorized by the BIR where all transactions and results of operations are presented and for which all taxes due to the Government may be promptly and accurately ascertained and defined any time of the year.
All in all, it is used for recording everything associated with business-related transactions are recorded in 6 basic books.
Users of Books of Accounts
A taxpayer must have the ideas of all the sales and expenses of the company to determine the taxes, and books of accounts play an essential role in the smooth management of all this.
Not only taxpayers but all industrialists are also required to regularly update the company’s financial transactions in their books to be aware of the financial status and results of the company.
Accounting is a crucial part of managing your finance, and books of Accounts help to take care of your healthy financial condition. Books of Accounts or the accounting records are maintained if the gross receipts are more than 150,000 back to back in 3 preceding years for a particular profession.
When a business expects gross receipts of more than 150,000, the Books of Accounts are applicable from the very beginning of the business. The accounting records are documented under the rule of 6F, and the professions that are eligible for applying Books of Accounts are as follows:
- Engineering
- Architectural
- Legal
- Medical
- Accountancy
- Interior design
- Technical advisors
- Authorized representative – represents a person in exchange for money before the tribunal or any authority that falls under any law.
- Freelancer – if the gross receipts exceed Rs. 150,000
- Company secretary
- Film artists – includes actress/actor, lyricists, singer, cameraman, producer, director, writer, and other involved professions.
Various Formats of Books of Accounts
All business establishments and taxpayers need to maintain a record of their daily business transactions. It helps them to know about the result of their operations.
The books of accounts need to be registered if the business organization or a taxpayer applies for the registration certificate in a proper format. Books of accounts have three formats- manual books of accounts, loose-leaf books of funds, and computerized accounts.
Let us have a look upon these three formats here and now-
1. Manual
This format is done by introducing traditional books that anyone can find in office supply stores or offices.
Manual Books of Accounts is mainly a journal, ledger, and book column that is available in the market and hand-written. Small businesses mostly use this format as it’s elementary to register with BIR.
On the bright side, annual renewing or re-stamping isn’t necessary for manual Books of Accounts, and you can renew the accounting book if it is wasted or wholly used.
2. Loose-leaf
Loose-leaf Books of Account is created with the help of spreadsheets and records the transactions digitally.
In this method, the documentation of all transactions is done by encoding the financial information on the computer and printing out the template copies directly. Loose-leaf Books of Accounts demand the formats be contained with all the bookkeeping records of the taxpayers.
The loose-leaf Books of Accounts users need to submit the forms within 15 days after each taxable year or simply at the end of the use.
3. Computerized
Computerized Books of Accounts is used for fast recording of the financial activities and is popular among the big companies.
The method is performed by complicated accounting software and highly qualified professionals but takes a lot of time to get approved for computerized Books of Accounts.
The users require to submit the financial reports within 30 days after the termination of each taxable year or at the end of the use of the book.
This format needs to get registered within your BIR Regional District Office and demands a stamp from BIR to get approved.
Types of Books of Accounts
Apart from the format of Books of Accounts, different types of books of accounts are available in the market to record sales and channelize financial accounting program effectively to analyze the financial capacity of a business.
Commonly these types are classified in two different ways- Ledger and Journal. Let us delve into all the six types here and now-
1. General Journal
General Journal is also known as the book of original entry and records all the financial transactions regarding the transaction date. It is used for recording transactions as it happens.
It is the first book where the business transactions are documented, and it follows the general principle of debit and credit.
2. General Ledger
Also known as the final book of entry, General Ledger provides the summarized journal entries of an account to supply a reconciled balance.
This Book of Account always keeps records of assets, liabilities, revenues, expenses, and company incomes. So, General Ledger is the combined result of both General Journal and Special Journals.
3. Cash Receipt Journal
This special type of journal is used to record all cash payments of expenses and collect receivables.
Entries of financial operations can be documented in the forms of sale of an asset, cash sales, collections from clients, payments from interests, rent, etc.
All in all, the cash receipts are used for recording cash sales/ receivables.
4. Cash Disbursement Journal
Cash disbursement is the internal journal handled by the accountants to keep the record of the outflow of cash in the businesses.
This book of account helps the professionals understand the payment status of companies and records cash payments of payables/expenses to contribute immensely to the updates of the general ledger.
5. Sales Journal
Sales Journal is a particular type of journal used to record all the sales of a company, including the sales of merchandise or other products offered by the company.
Hence, it is one of the most useful forms of books of account for recording credit sales.
6. Purchase Journal
This is one of the Books of Accounts that records the purchases and disbursements of the company on the credit.
This is the documentation used to record credit purchases.
The general journal mentioned above is understood as a traditional journal while the other four types of journals mentioned above are also understood as a special journal.
These six types are grouped in two different ways for businesses involved in different activities-
Books of Accounts for Service Business
- General Journal
- General Ledger
- Cash Receipt Journal
- Cash Disbursement Journal
Books of Accounts for Business involved in Sales of Goods or Properties
- General Journal
- General Ledger
- Cash Receipt Journal
- Cash Disbursement Journal
- Sales Journal
- Purchase Journal
Conclusion!
Books of Accounts define a healthy practice for all companies with the proper records of all financial transactions.
Simply, it portrays a story about the financial status of a company and helps to make crucial decisions about tej financial activities of companies.
Regardless of the maintenance of books of account by you or appointed accountants, keeping books of account is very important for each business.
